COI Quant Trader Issue: September 25, 2023

Weekly Commentary

Volatility has, once again, made an appearance. However, as we have all seen over the past few months, sightings have been rare and, more annoyingly, fleeting. If volatility and in turn IV ranks are able to stay at current levels or potentially rise a little, we should begin to see opportunities pick up. I’ll continue to remain cautiously optimistic and patient until then. I do intend on adding at least one iron condor (November expiration cycle) to the mix this week, most likely early Monday. As always, my goal is to have three to five open trades at any given time. With IV ranks low across the board the past few months, we’ve remained patient and kept our powder dry. That could be changing soon, if volatility continues to trade around these levels, if not higher, for more than a day or two.

If you have any questions, please do not hesitate to email me at andy@cabotwealth.com.

Current Portfolio

Volatility Talk

The see-saw action of the S&P 500’s volatility gauge continued last week with a return to the upside. The stark move came as the major market index lost 2.8% on the week. Volatility is back, for the moment, and it’s time to take advantage of the heightened options premium that resides across the board. I’ll be looking at a few iron condors going out to the November 17, 2023, expiration cycle. The 18 handle has acted as stubborn overhead resistance over the past few months so it will be interesting to see if the VIX can push through that level over the near term. If so, more and more opportunities to sell options premium should present themselves.

Weekly High-Probability Mean Reversion Indicator

Below is my watch list of ETFs and stocks with the most liquid options headed into the week of September 25, 2023.

Here are the various levels I use to determine if an ETF is in an oversold or overbought state

Each week I also include the current implied volatility (IV) and IV Rank. I look for an IV rank above 40, preferably higher.

ETF Watch List – Trade Ideas

Stock Watch List – Trade Ideas

Weekly Trade Discussion: Open Positions

*Portfolio updated every Monday

Iron Condor: IWM October 20, 2023, 164/169 – 199/204 calls

Original trade published on 9-6-2023 (click to see original alert)

Background: At the time of the trade, IWM was trading for 185.75. We sold the October 20, 2023, IWM 164/169 – 199/204 iron condor for $0.62. The expected range or move was 177 to 194.

Current Thoughts: At the time of the trade IWM was trading for 185.75 and now it sits at 176.67. Our probabilities sit at a comfortable 98.96% on the call side and far less comfy 77.50% on the put side. We could buy back the iron condor for $0.68, slightly higher than the $0.62 we sold the spread for roughly 20 days ago. Obviously, a move to the upside will help to increase the probabilities on the trade and allow our position to move back into profitable territory. I’m seeking gains of at least 7% to 9%, if not more. Our max profit on the trade is 14.2%.

Call Side:

Put Side:

As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.

The next Cabot Options Institute – Quant Trader issue will be

published on October 2, 2023.